Late Surge in Equities and Energy Pressures U.S. Dollar
The U.S. Dollar gave back earlier gains to finish lower against all major currencies. Early in the trading session the Dollar received support from a friendly U.S. Second Quarter GDP Report. This report showed the economy as flat rather than the pre-report estimate of a 1.5% lower.
Overall choppy, two-side trading conditions dominated the Forex markets today. Light volume makes these markets vulnerable to whip-saw like actions.
The Forex trading session turned volatile at about midsession following a report which showed that the FDIC was monitoring a record number of banks in trouble. Equity markets also began to rally along with crude oil, sending the Dollar sharply lower into the close.
The EUR USD rallied on Thursday. The battle continues between the Fed and the European Central Bank as to who will raise interest rates first. Traders will be placing bets based on which country will lead the world out of the recession. The strong surge in equity and energy markets late in the day helped boost the Euro.
Technical factors helped rally the GBP USD today. Fundamentally, this market has been under pressure since the first week in August when the Bank of England decided to expand its quantitative easing program. Oversold conditions helped trigger a short-covering rally today.
Oversold conditions and an increase in demand for higher risk assets helped boost the Canadian Dollar. As the day began traders were noting the start of another risk aversion phase in the marketplace, but this way of thinking quickly evaporated when the equity markets rebounded following a sharp sell-off at the midsession.
The USD JPY was under pressure the entire trading session as Japanese investors repatriated funds in anticipation of weakness in the Chinese equity markets. Traders feel a slow down in Chinese growth will spread to other markets. Japanese traders are looking for safety at this time until they can get a better assessment of what the Chinese government wants to do to curb over capacity and reckless speculation.
The late session surge in U.S. equity markets triggered huge demand for higher yielding assets boosting the AUD USD and NZD USD into the close. For much of the week, the Australian and New Zealand Dollars have struggled to hold on to recent gains because of concerns that the Chinese regulators would implement new rules to stifle excessive growth in their economy. Today's strength in the Australian Dollar came from a report showing that Australian business investment unexpectedly rose in the second quarter.